Credit Conditions when Lenders are Commonly Owned

Mattia Colombo, Laura Grigolon and Emanuele Tarantino

No 17106, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We investigate how common ownership between lenders affects the terms of syndicated loans. We conjecture that common ownership between lenders mitigates information asymmetries on the quality of the borrower. We theoretically and empirically show that high common ownership decreases loan rates, lowers the share of the loan retained by the lead bank, and mitigates rationing at issuance. Further investigations support the hypothesis that common ownership is an information transmission device: it especially affects the terms of loans to new borrowers, and, as information flows from the lead bank to syndicate members, member-to-lead common ownership does not affect credit conditions.

Date: 2022-03
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